As Inflation Drives Up Prices, People Attempt to Find Substitutes

question 176

Multiple Choice

As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to

• A) overstate the impact of higher prices on consumers.
• B) consistently underestimate the true inflation rate.
• C) omit the benefits of product quality improvements.
• D) have larger fluctuations than other price indexes.

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Definitions:

Bank Statement Adjustment

The process of reconciling the difference between a bank's record of an account's balance and the amount shown in the account holder's books.

Company Books Adjustment

The act of making entries or corrections to the financial records of a business to reflect accurate and up-to-date accounting information.

Safe Deposit Box

A secure container, usually found at a bank, where customers can store valuable personal items.

Bank Statement Adjustment

The process of modifying the balance on a bank statement to reflect transactions that have not been recorded by the bank by the end of the reporting period.